Acting Rationally

I share in this fascination. The way in which competitive sports as a professional endeavor and a business has evolved over the last century and a half or so is a large part of the reason why I started writing so much about esports in this space. I mean, when I propped this installation of Wordpress up, I was planning on writing a great deal about writing software for the web, and that hasn’t happened much at all. Much of my scribblings here keep dragging back to this topic because I think it should easily provide insights into why things are as they are in esports, and how they could be better.

Then again, I just had a debate in ESFI channels in which it was put in absolutist terms that any comparison to the larger sports world is completely inapplicable. So there’s that.

Nothing new under the sun

Like I’ve said in the past, this has all been done before. We’re quite literally burning cash re-learning lessons that have already been hashed over several times. But apparently, since it found its genesis on the internet, it’s all brand new, and unquestioned routine scene machinations should stay unquestioned.

Take the situation where most teams, even among those that would count themselves amongst the ‘top tier’ of Starcraft II teams, take on losses month after month. I figured this was the case to an extent, but I really didn’t have any idea just how upside-down some teams are until I had a chat recently with the manager of one said ‘top tier’ team.

Esports has, from the start, operated much along the lines of association football in Europe: brazenly capitalist and absolutely adversarial. Teams have avoided direct cooperation at all costs. Even the organization that was setup with the specific purpose of promoting inter-team relations is dysfunctional and irrelevant to the point of embarrassment. Teams don’t even work with each other for the purpose of organizing competitions; third parties are relied on to provide this for teams.

Let’s stop a moment and chew on that: esports teams can’t even be bothered to cooperate towards the end of doing what it is they exist to do, which is play video games against each other. They rely on third parties, unanswerable to them, with completely separate business models, to fill that purpose.

And we wonder why nobody’s making money…that is except for the people that always seemed to be able to do so.

This model of developing a sport clearly works eventually (if you can give it a century) but it’s not without it’s warts, chief of which is group of heavily ensconced teams who have enjoyed great success in the past, and thus have the cash to ensure they will continue enjoying great success for the forseeable future, given that the leaders of these teams generally act rational. The flip side of this coin is a long parade of teams that take on massive losses in an attempt to climb the ladder, only to plateau a ways up or face a costly relegation, dashing their chances of making back investments. The road to a few teams making it big in this model is littered with the corpses of teams that were not flush with cash or did not enjoy immediate success and saw their reserves run dry.

At least in the case of footy in Europe, teams have something they can sell tickets for; they aren’t relinquishing control over their primary product, matchplay, to some third party trying to eke a business model out at their expense. All esports teams leave themselves with is revenue from sponsorship deals. And if you’re not filling your cup from Intel’s marketing budget, chances are you’re not making it.

The grand folly of today’s Starcraft-dominated esports is that new teams are popping up all the time despite the position of the team as being completely irrational; at first glance, it seems impossible that all these teams are acting irrationally, that so many people are propping up teams against ridiculous losses.

Someone must be making money, right? And if not, it’s just that these other fools are doing it wrong. Mmhm.

The teams that have found a profitable model on the backs of large sponsorships know that they’re in a privileged position. They must know that the fundamentals can only work out for less than a handful of teams. They must know that this situation doesn’t change regardless of how much in sponsorship money pours in.

It’s not a conspiracy, they’re just protecting their interests and investments. But don’t believe for a second you can do it too.

Can a group of rational actors create an irrational whole?

Let’s look at the way the Starcraft scene is operating for a moment.

Players are way overpriced. They can demand from teams above and beyond what they’re worth because there’s some team somewhere that will pay it in an attempt to get a leg-up on the others. An ever-growing group of teams is constantly jockeying for position amongst themselves, and the revolving door at the front of the scene churns out new teams just as fast as it spits out the losers. This constant friction ensures that players of any notoriety can price themselves at a point where they’re literally too expensive for all but a few teams. A team that can’t afford it will still come in at that price, justifying it as losses taken on to gain market share and future profits.

Players are pricing themselves at a point where they’re literally parasitic to teams, and teams have little choice but to go along if they wish to stay relevant. Yet, both players and teams think they’re acting rationally - players think they’re getting what they’re due, and teams think they’re doing what they need to do to keep in the game.

Teams have only one avenue to try and recoup the costs of giving players salaries, and covering travel and accommodations for events; that avenue is sponsorships. Money from streaming is barely a drop in the bucket (unless you’re Team Liquid), you don’t have a matchplay product to sell tickets for, nobody really wants your apparel because people are fans of players in Starcraft and not the teams, and your deals with your players cut you out of any prize earnings. For most, the revenue coming in from sponsor deals doesn’t come close to matching their costs.

And here’s the rub: since so many teams are willingly putting themselves in this position, they’re dooming themselves from the start. You’ve no recourse to remedy this situation.

Say you’re particularly shrewd and manage to get to a point where you cover costs through sponsorships. Congrats; you’ve just worked your way straight to redundancy. The instant your players figure out you’re making money is the instant they ask for more; hey, you could afford their smaller demands when you were making less, couldn’t you? And if you don’t pay it, some other team that hasn’t been pumping bilge for as long as you have will be more than happy to pick up that tab, and the corresponding HYPE, BRO that will follow.

Say you’ve got one good player and a few middling guys, or even just one good player and that’s it. It’s not going to take long for that top player and the sponsors to realize that you’re an inefficiency, that the sponsor can get the same amount of exposure by just sponsoring that player directly, and that the player can probably get a better deal out of it too.

For now though, you’re filling the noble and thankless role of filling the gap between the players’ expected compensation and what market value they actually have. Once those two metrics converge, what’s your purpose?

On the flip side, the tournaments are trying to make money on your backs as well. You foot the bill to get players to an event, where there’s increasing uncertainty over whether said tournament will allow you to meet the obligations you’ve made to your sponsors in regards to logo placement, and then any money that comes back out of these tournaments just go straight to the player anyway, per their contracts.

And what about the PPV model that’s being tested this year? Just another way to cut you out. But it’s actually a far more natural way of going about running a tournament - the tournament itself makes sure it stocks the brackets with talent, hypes the players, gets spectators to show up, and charges admission. Yup, once again, you’re out of a job.

Ain’t that a bitch!? But that’s how it’s supposed to be.

This is what I’m talking about when I say that there isn’t a place for a team structure in a solo sport like Starcraft. You, as a team, are literally redundant, you are a middle man, you’re a layer of abstraction that doesn’t need to exist, and certainly cannot be profitable for the vast majority.

Players, teams, tournaments. All seemingly acting rationally from their own standpoints, ensuring lots of people waste lots of money.

Teams have a path to stability and profits, but it’s in games that specifically demand their presence, where they are the competitive units, and where they have something to sell. It’s not Starcraft.